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Adjusting Iron Condors

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Iron Condors are a directionally neutral, defined risk strategy that consists of a short Call Vertical and a short Put Vertical. The strategy reaches maximum profit when an underlying stays within the two short strike prices. When Iron Condors turn into losers, however, there are a few ways to defend this strategy.

One choice is to roll the untested side of the trade if there is sufficient credit to collect, typically around 25% of initial credit. The added benefit is that the delta exposure of the position gets reduced.

Where to roll depends on the severity of the directional assumption. Rolling the untested side to the 20-30 delta strike still allows for protection if the stock reverses. Alternatively, rolling the untested side to the tested strike is another choice if the trader wants to reduce risk as much as possible without exiting trade.

Tune in for the final conclusions on rolling the untested side when the underlying price moves up or down and why we look for 25% of initial credit received when rolling defined risk spreads.

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